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Demographics of Debt

The famed patriot Patrick Henry proclaimed “Give me liberty … or give me death!” at America’s founding.

Spurred by the COVID-19 pandemic economic jolt, the country’s motto has changed to “Forget financial liberty … give me debt!”

American household debt hit a record $14.6 trillion in the spring of 2021, according to the Federal Reserve. If you had to write that check it would read $14,600,000,000,000.

Lucky for you, that debt is shared by about 340 million people. But who are the most likely to get into debt?

More importantly, who are the ones most likely to get out of debt?

It’s all a matter of age, income, ethnicity, family type and education level. Demographics don’t strictly determine one’s debt, but understanding such statistics is important.

It can motivate you to go against the numbers and find financial liberty. Here’s a look at the recent history and major demographics of debt.

The Pandemic Impact on Debt

The less your income, the easier it is to pile up debt. That obvious lesson hit home in 2020.

The unemployment rate went from 3.5% pre-COVID to a peak of 14.8% in April 2020—the highest level since 1948.

The total U.S. consumer debt balance grew $800 billion, according to Experian. That was an increase of 6% over 2019, the highest annual growth jump in over a decade.

Student loan debt increased the most (12%), followed by mortgage debt (7%) and personal loan debt (6%).

But credit card debt dropped $73 billion, a 9% decrease from 2019 and the first annual drop in eight years.

A November 2020 Experian survey showed that 66% of consumers were spending the same or less during the pandemic than they had in 2019. About 33% of those surveyed said they put more in savings in 2020 than they did in the last year.

Average American Debt by Age

You’ve probably heard the saying “You have to spend money to make money.” Economists debate that, but there’s little doubt that people spend more when they’re making more.

The average American has $90,460 in debt, according to a 2021 CNBC report. That included all types of consumer debt products, from credit cards to personal loans, mortgages and student debt.

The average amount of debt by generation in 2020:

  • Gen Z (ages 18 to 23): $16,043
  • Millennials (ages 24 to 39): $87,448
  • Gen X (ages 40 to 55): $140,643
  • Baby boomers (ages 56 to 74): $97,290
  • Silent generation (ages 75 and above): $41,281

Debt and Education

The more educated you are, the more debt you have. That’s because higher education leads to higher income, and higher income leads to higher spending.

People with college degrees carry an average of $8,200 in credit card debt. Those who attended college but did not graduate carry $4,700. High school graduates only carry an average of $4,600, according to data from the Federal Reserve, the Consumer Financial Protection Bureau and Experian.

A person’s education level directly affects their earning potential.

Here are 2020 Bureau of Labor Statistics on average annual income by education level:

  • Less than a high school diploma – $30,784
  • High school education – $38,792
  • Attended some college – $43,316
  • Two-year college degree – $46,124
  • Bachelor’s degree – $64,896
  • Master’s degree – $77,844
  • Doctorate degree – $97,916

Though it’s not always the case, if you’re smart enough to get a college education you’re probably smart enough to stay out of unmanageable debt.

Average Debt to Income Ratios

Debt to income ratio is a key indicator of financial health. It’s determined by taking you monthly expenditures and dividing that number by your monthly income.

For instance, if your bills amount to $5,000 a month and you make $7,500 a month, your DTI is 66%. It also means you are dire need of financial overhaul.

The maximum DTI you can have to qualify for a mortgage is usually 43%. Most financial advisors recommend keeping your DTI at 30% or lower.

Overall, DTIs have risen over the years. A 2018 Federal Reserve report showed a slow but steady rise from 1980s, then a sharp increase during the housing boom of the early 2000s.

It dropped with financial crisis of 2008, which indicated many households cut consumption or defaulted on loans.

The median household income hit $79,900 in the first quarter of 2021, according to the U.S. Department of Housing and Urban Development. That’s almost $35,000 more than it was in 2000.

But the typical American household now carries an average debt of $145,000. The median debt was only $50,971 in 2000.

Year-to-year DTI statistics are hard to come by, but given the rise of debt versus the rise in income, it’s apparent that Americans in all demographic groups have higher debt-to-income ratios.

Debt and Family Type

Research shows that singles have more friends and certainly more free time than married couples, but being married decreases the chances you’ll stay in debt.

The median income for general population households was $90,500 in 2020, according to a C+R Research report. The median income for singles was $72,300.

A 2017 study of 2,000 people by TD Ameritrade found that 43% of married couples considered themselves financially secure compared to 29% of singles.

When it comes to savings, a Consumer Services report found that the average single person in the 35-44 age group with no children had $3,693 in savings. A married couple with no children in that demographic had $10,399 in savings.

Debt and Income

The wealthier you are, the more likely you will carry debt. Of course, the wealthier you are, the easier it is to erase that debt.

Americans in the top 10% by income have a median of $222,200 in debt, whereas those in the bottom 25% have less than $20,900.

When it comes to home ownership, smaller income means less chance of even qualifying for loan debt. Credit card qualification is less stringent, but the basic rule still applies.

People in the highest 10% of annual income had an average credit card debt of $12,600, according to a 2021 ValuePenguin analysis of Census and Federal Reserve reports.

The average debt based on income scale:

  • $290,000 and more – $12,600
  • $152,000 to $290,999 – $9,780
  • $95,00 to $151,999 – $6,990
  • $59,000 to $94,999 – $4,910
  • $35,000 to $58,999 – $4,650
  • Less than $34,999 – $3,830

Debt and Minorities

Minorities in general earn less than whites, though that doesn’t necessarily translate to more debt because they have less to spend and are less likely to qualify for higher-dollar loans.

The average credit card balance for white families was $6,940 in 2021, according to the Value Penguin study. For Black families it was $3,940, and for Hispanics it was $5,510.

From 2000 to 2019, the median household income of Blacks went from $45,442 to $46,073, according to the Economic Policy Institute. For Hispanics, it increased from $47,841 to $56,113. For Asians, it jumped from $80,000 to $98,174

According to a 2019 Federal Reserve report, the median net worth for white families was $188,200. For Blacks families, it was $24,100, and for Hispanics it was $36,100.

Student loan debt disproportionately affects minorities. Blacks have an average $52,000 in student loan debt in 2021, according to studies compiled by Educationdata.org. About 40% of Black graduates have student loan debt from graduate school, while 22% of white college graduates have graduate school debt.

About 60% of Asian bachelor’s degree holders have educational loan debt. That figure increases to 67% for Hispanic and Latino student borrowers, and 70% for white borrowers.

Four years after graduation, 48% of Black students owe an average of 12.5% more than they borrowed. After that same period, 83% of White students owe 12% less than they borrowed.

Debt and Gender

Women have made huge economic gains over the decades, but most will have more debt than men. In 2021, women earn 82 cents for every dollar earned by men, according to crowdsourced data compiled by PayScale.

The median salary for men was about 18% higher than for women. That’s a 1% improvement from 2020 and an 8% improvement from 2015.

Experts cite a variety of reasons for the gender gap – discrimination, career choices, maternity and others. Whatever the cause, the end result is that women have less money.

One problem is many start their career in deeper financial holes. Women hold 58% of all student loan debt, according to the National Center for Education Studies.

It takes them an average of 2 years longer to pay off those loans. Borrowers who identify as LGBTQ have an average of $16,000 more in student loan debt than those who do not.

Women over 65 also lag when it comes to retirement income and savings. Their median household retirement income was $47,244, according to a 2020 survey by the National Institute for Retirement Security.

That was 83% of what their male counterparts, who live in households with a median retirement income of $57,144, including Social Security, pensions, investment income and earnings.

Student Loan Debt

Paying for college has turned into a long-term burden for millions of Americans. The total bill as of March 2021 was $1.7 trillion, according to the Federal Reserve. That was more than double what it was a decade earlier.

Not surprisingly, the 18-to-29 age group accounted for 34% of that debt, according to the Department of Education. But the highest average belonged to 35-year-olds who took out loans. Their average outstanding balance was $42,600.

A report from The Brookings Institution showed that the 6% borrowers owed more than $100,000 in student loan debt, including 2% that owed more than $200,000. That six-figure club accounted for one-third of all student loan debt.

As for the best investment for that money, a Lending Tree survey tracked the “earnings to debt” ratio of degrees. The study divided the average student loan disbursement for 64 majors by their closest-matching job’s early career wage.

The majors with the highest earning-to-debt ratio were Physical Sciences, Computer Engineering, General Engineering, Chemical Engineering and Computer Science.

The degrees that provided the lowest immediate bang for the buck were Law, Pharmacy and Education. Early career wages are middling in those fields, but can increase appreciably over time.

Whatever the degree, getting a sheepskin generally increases a student’s earning prospects. People who obtain a degree make an average of 71% more money than peers with only high school diplomas, according to the U.S. Census Bureau.

Federal student loans were granted forbearance in 2020 due to the COVID-19 shutdown. Though a firm loan-forgiveness plan was not in place, advocacy groups are pushing the Biden Administration to cancel roughly $1 trillion in student debt, up to $50,000 per person.

That would help alleviate one category of U.S. debt, though that money would still have to be paid by somebody.

So for all the studies and programs and vagaries of spending vs. earning in the U.S., one thing is certain. America’s debt train is going to keep chugging along.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

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